SECOND AMENDMENT TO
CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT is made and dated as of December
31, 1997 (the "Amendment") among PACIFICARE HEALTH SYSTEMS, INC., formerly known
as N-T Holdings, Inc., a Delaware corporation (the "Company"), the Banks party
to the Credit Agreement referred to below, and BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, a national banking association, as Agent (the "Agent"),
and amends that certain Credit Agreement dated as of October 31, 1996, as
amended by that certain First Amendment to Credit Agreement dated as of August
15, 1997 (as so amended, the "Credit Agreement").
RECITALS
WHEREAS, the Company has requested the Agent and the Banks to amend certain
provisions of the Credit Agreement, and the Agent and the Banks are willing to
do so, on the terms and conditions specified herein;
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree as follows:
1. TERMS. All terms used herein shall have the same meanings as in the
Credit Agreement unless otherwise defined herein.
2. AMENDMENT. The Credit Agreement is hereby amended as follows:
2.1 AMENDMENTS TO SECTION 1.1. The definitions of the terms
"Applicable Level" and "Applicable Margin" in Section 1.1 of the Credit
Agreement are hereby amended and restated to read in their entirety as follows:
"Applicable Level" means one of the levels set forth below determined
by the Senior Unsecured Debt Rating as follows:
"LEVEL 1" means any period during which the Senior Unsecured Debt
Rating is better than or equal to at least two of the following three
ratings: (i) A- by S&P and/or (ii) A3 by Xxxxx'x and/or (iii) A- by
Fitch.
"LEVEL 2" means any period (other than a Level 1 Period) during
which the Senior Unsecured Debt Rating is better than or equal to at
least two of the following three ratings: (i) BBB+ by S&P and/or (ii)
Baal by Xxxxx'x and/or (iii) BBB+ by Fitch.
"LEVEL 3" means any period (other than a Level 1 Period or Level
2 Period) during which the Senior Unsecured Debt Rating is better
than or equal to at least two of the following three ratings: (i) BBB
by S&P and/or (ii) Baa2 by Xxxxx'x and/or (iii) BBB by Fitch.
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"LEVEL 4" means any period (other than a Xxxxx 0 Xxxxxx, Xxxxx 0
Period or Level 3 Period) during which the Senior Unsecured Debt
Rating is better than or equal to at least two of the following three
ratings: (i) BBB- by S&P and/or (ii) Baa3 by Xxxxx'x and/or (iii)
BBB- by Fitch.
"LEVEL 5" means any period (other than a Xxxxx 0 Xxxxxx, Xxxxx 0
Xxxxxx, Xxxxx 0 Period or Level 4 Period) during which the Senior
Unsecured Debt Rating is better than or equal to at least two of the
following three ratings: (i) BB+ by S&P and/or (ii) Bal by Xxxxx'x
and/or (iii) BB+ by Fitch.
LEVEL 6" means any period (other than a Xxxxx 0 Xxxxxx, Xxxxx 0
Xxxxxx, Xxxxx 3 Period, Level 4 Period or Level 5 Period) during which
the Senior Unsecured Debt Rating is better than or equal to at least
two of the following three ratings: (i) BB by S&P and/or (ii) Ba2 by
Xxxxx'x and/or (iii) BB by Fitch.
"LEVEL 7" means any period (other than a Xxxxx 0 Xxxxxx, Xxxxx 0
Xxxxxx, Xxxxx 3 Period, Xxxxx 0 Xxxxxx, Xxxxx 0 Period or Level 6
Period) during which the Senior Unsecured Debt Rating is better or
equal to at least two of the following three ratings: (i) BB- by S&P
and/or (ii) Ba3 by Xxxxx'x and/or (iii) BB- by Fitch.
"LEVEL 8" means any period other than a Xxxxx 0 Xxxxxx, Xxxxx 0
Xxxxxx, Xxxxx 3 Period, Xxxxx 0 Xxxxxx, Xxxxx 0 Xxxxxx, Xxxxx 0
Period or Level 7 Period.
For purposes of the foregoing, (a) if the Senior Unsecured Debt
Ratings fall within different Levels, the Applicable Level shall be based
upon the Level in which the largest number of Senior Unsecured Debt Ratings
fall; PROVIDED, that if there shall be no such Level, the highest and the
lowest Level shall be excluded and the Applicable Level shall be the
remaining Level; (b) if only two Senior Debt Ratings exist and they shall
fall within different Levels, the Applicable Level shall be based upon the
higher (numerically lower) of the available Levels unless such Levels are
more than one Level apart, in which case the Applicable Level shall be one
Level higher than the lower Level; (c) if only one Senior Unsecured Debt
Rating exists, the Applicable Level shall be based upon the Level in which
such rating falls and (d) if no Senior Unsecured Debt Rating shall be
available from at least one of S&P, Xxxxx'x or Fitch, the Applicable Level
shall be Level 8.
"Applicable Margin" means, in the case of Facility Fees, Base Rate
Committed Loans or LIBOR Committed Loans, a rate per annum determined by
reference to the Applicable Level as follows:
Applicable Base Applicable LIBOR
Applicable Level Rate Margin Rate Margin Facility Fee
---------------- ----------- ----------- ------------
Xxxxx 0 0.0% 0.200% 0.100%
Xxxxx 0 0.0% 0.225% 0.125%
Xxxxx 0 0.0% 0.250% 0.150%
Xxxxx 0 0.0% 0.325% 0.175%
Xxxxx 0 0.0% 0.550% 0.200%
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Level 6 0.0% 0.775% 0.225%
Xxxxx 0 0.250% 1.250% 0.250%
Xxxxx 0 0.700% 1.700% 0.300%
Changes in the Applicable Margin shall take effect (i) in the case of
the Applicable LIBOR Rate Margin for LIBOR Loans, at the beginning of the
following Interest Period and (ii) otherwise, as of the date of public
announcement by S&P. Xxxxx'x or Fitch, as applicable.
2.2 AMENDMENTS TO SECTION 2.9. Section 2.9 of the Credit Agreement
is hereby amended by inserting "(a)" immediately after "MANDATORY
COMMITMENT REDUCTIONS" and by adding a new subsection (b) thereto reading
in its entirety as follows:
(b) The aggregate Commitments shall automatically and permanently be
reduced by an amount equal to the first $350,000,000 of the net cash
proceeds received by the Company from the incurrence of any Indebtedness
permitted by Section 7.3(d). Such payments shall be applied to the
mandatory Commitment reductions set forth in clause (a) above in direct
order of application.
2.3 AMENDMENTS TO SECTION 2.11.
(a) Clause (a) of Section 2.11 of the Credit Agreement is hereby
amended by deleting the phrase "(in the case of LIBOR Loans)" from the
fifth and sixth lines thereof.
(b) Clause (c) of Section 2.11 of the Credit Agreement is hereby
amended by inserting "plus the Applicable Base Rate Margin" after the words
"Base Rate" in the ninth line thereof.
2.4 AMENDMENTS TO SECTION 7.7.
(a) Clause (d) of Section 7.7 of the Credit Agreement is hereby
amended and restated in its entirety to read as follows:
"(d) from and after December 1, 1997, the Company may repurchase
up to $500,000,000 of its Class A capital stock, its Class B capital
stock or its preferred stock, PROVIDED, that, immediately after giving
effect to such proposed action, there exists no Default or Event of
Default;
(b) Clause (e) of Section 7.7 of the Credit Agreement is hereby
amended and restated in its entirety to read as follows:
"(e) Intentionally omitted;"
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2.5 AMENDMENT TO SECTION 7.3.
(a) Clause (b) of Section 7.3 of the Credit Agreement is hereby
amended by deleting "on the Closing Date" and substituting therefore "on
December 1, 1997."
(b) Clause (d) of Section 7.3 of the Credit Agreement is hereby
amended and restated in its entirety to read as follows:
"(d) Other unsecured Indebtedness incurred by the Company after
December 1, 1997 in an aggregate amount not to exceed $500,000,000;
PROVIDED in no event may such Indebtedness have terms more restrictive than
those set forth in this Agreement nor may the principal payment dates under
such Indebtedness commence prior to March 31, 2002;"
(c) Clause (h) of Section 7.3 of the Credit Agreement is hereby
amended and restated in its entirety to read as follows:
"(h) Additional Indebtedness of the Company and its Subsidiaries up to
but not exceeding an aggregate amount of $100,000,000 at any time
outstanding, with not more than $50,000,000 of such amount being
attributable to Indebtedness of the Company's Subsidiaries to Persons other
than the Company or any other Subsidiary of the Company."
2.6 AMENDMENT TO SECTION 7.7. Clause (a) of Section 7.7 of the Credit
Agreement is hereby amended and restated in its entirety to read as follows:
"(a) the Company may declare and (i) make dividend payments or other -
distributions payable solely in its common stock, and (ii) so long as both
before and after giving effect thereto no Default or Event of Default would
exist and so long as the aggregate amount of such dividend payments in any
Fiscal Year does not exceed $12,000,000, pay current dividends on its
Series A Cumulative Convertible Preferred Stock outstanding as of the
Effective Date;
2.7 AMENDMENT TO SECTION 7.10. Section 7.10 of the Credit Agreement
is hereby amended and restated in its entirety to read as follows:
7.10 FINANCIAL COVENANTS. The Company shall not permit:
(a) its Leverage Ratio, as of the end of any fiscal quarter, to
exceed (i) 3.0 to 1.00 at any time from completion of the FHP
Acquisition through December 31, 1997, (ii) 3.75 to 1.00 from January
1, 1998 through Xxxxx 00, 0000, (xxx) 3.5 to 1.00 from April 1, 1998
through June 30, 1998, (iv) 3.25 to 1.00 from July 1, 1998 through
September 30, 1998, and (v) 3.00 to 1.00 at any time thereafter;
(b) its Fixed Charges Coverage Ratio, as of the end of any
fiscal quarter, to be less than (i) 2.00 to 1.00 at any time from
completion of the FHP Acquisition through December 31, 1997, (ii) 2.5
to 1.00 from January 1, 1998
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through December 31, 1998, (iii) 2.75 to 1.00 from January 1, 1999
through December 31, 1999 and (iv) 3.0 to 1.00 at any time thereafter;
or
(c) its Net Worth, as of the end of any fiscal quarter, to be
less than (i) 90% of its Net Worth immediately following completion of
the FHP Acquisition, PLUS (ii) 50% of the consolidated net income
(without giving effect to any consolidated net losses and after the
payment of any dividends on any preferred stock) of the Company and
its Subsidiaries for each fiscal quarter beginning after completion of
the FHP Acquisition, PLUS (iii) 50% of the Net Equity Proceeds from
any equity offering by the Company or any conversion of Series A
Cumulative Convertible Preferred Shares after the date hereof, MINUS
the aggregate purchase price for all of the Company's Class A capital
stock, Class B capital stock and preferred stock repurchased after
December 1, 1997.
The Fixed Charges Coverage Ratio and the Adjusted EBITDA component of
the Leverage Ratio shall be calculated on a Combined Basis for the
quarters ending before the FHP Acquisition and on a consolidated basis
after the FHP Acquisition.
2.8 AMENDMENT TO SCHEDULE 7.3. Schedule 7.3 of the Credit Agreement
is hereby amended and restated to read in its entirety as set forth on Schedule
7.3 attached hereto.
3. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to
the Agent and the Banks that, on and as of the date hereof, and after giving
effect to this Amendment:
3.1 AUTHORIZATION. The execution, delivery and performance by the
Company of this Amendment has been duly authorized by all necessary corporate
action, and this Amendment has been duly executed and delivered by the Company.
3.2 BINDING OBLIGATION. This Amendment constitutes the legal, valid
and binding obligations of the Company, enforceable against it in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws affecting the enforcement of creditors'
rights generally or by equitable principles relating to enforceability.
3.3 NO LEGAL OBSTACLE TO AMENDMENT. The execution, delivery and
performance by the Company of this Amendment has been duly authorized by all
necessary corporate action, and does not and will not:
(a) contravene the terms of any of the Company's Organization
Documents;
(b) conflict with in any material respect or result in any material
breach or contravention of, or the creation of any Lien under, any document
evidencing any material Contractual Obligation to which the Company is a
party or any order, injunction, writ or decree of any Governmental
Authority to which the Company or its property is subject; or
(c) violate any material Requirement of Law.
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3.4 GOVERNMENTAL AUTHORIZATION. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority is necessary or required in connection with the
execution, delivery or performance by, or enforcement against the Company of
this Amendment other than that which has been obtained.
3.5 INCORPORATION OF CERTAIN REPRESENTATIONS. The representations and
warranties of the Company set forth in Article V of the Credit Agreement are
true and correct in all respects on and as of the date hereof as though made on
and as of the date hereof, except as to such representations made as of an
earlier specified date.
3.6 DEFAULT. No Default or Event of Default under the Credit
Agreement has occurred and is continuing.
4. CONDITIONS, EFFECTIVENESS. The effectiveness of this Amendment shall
be subject to the compliance by the Company with its agreements herein
contained, and to the delivery of the following to Agent in form and substance
satisfactory to Agent:
4.1 AUTHORIZED SIGNATORIES. A certificate, signed by the Secretary
or an Assistant Secretary of the Company and dated the date of this Amendment,
as to the incumbency of the person or persons authorized to execute and deliver
this Amendment and any instrument or agreement required hereunder on behalf of
the Company.
4.2 AUTHORIZING RESOLUTIONS. A certificate, signed by the Secretary
or an Assistant Secretary of the Company and dated the date of the Amendment, as
to the resolutions of the Company's board of directors authorizing the
transactions contemplated by this Amendment.
4.3 AMENDMENT FEE. Payment to the Agent, for the PRO RATA benefit of
each Bank approving this Amendment, of an amendment fee in an amount equal to
.10 % of the aggregate amount of the Commitments held by the Banks approving
this Amendment.
4.4 GUARANTOR AFFIRMATIONS. Acknowledgment and reaffirmation letters
in the form of EXHIBIT A hereto, duly executed by each of the Guarantors.
4.5 OTHER EVIDENCE. Such other evidence with respect to the Company
or any other person as the Agent or any Bank may reasonably request to establish
the consummation of the transactions contemplated hereby, the taking of all
corporate action in connection with this Amendment and the Agreement and the
compliance with the conditions set forth herein.
5. MISCELLANEOUS.
5.1 EFFECTIVENESS OF THE CREDIT AGREEMENT AND THE Notes. Except as
hereby expressly amended, the Credit Agreement and the Notes shall each remain
in full force and effect, and are hereby ratified and confirmed in all respects
on and as of the date hereof.
5.2 WAIVERS. This Amendment is limited solely to the matters
expressly set forth herein and is specific in time and in intent and does not
constitute, nor should it be
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construed as, a waiver or amendment of any other term or condition, right, power
or privilege under the Credit Agreement or under any agreement, contract,
indenture, document or instrument mentioned therein; nor does it preclude or
prejudice any rights of the Agent or the Banks thereunder, or any exercise
thereof or the exercise of any other right, power or privilege, nor shall it
require the Banks to agree to an amendment, waiver or consent for a similar
transaction or on a future occasion, nor shall any future waiver of any right,
power, privilege or default hereunder, or under any agreement, contract,
indenture, document or instrument mentioned in the Credit Agreement, constitute
a waiver of any other right, power, privilege or default of the same or of any
other term or provision.
5.3 COUNTERPARTS. This Amendment may be executed in any number of
counterparts, and all of such counterparts taken together shall be deemed to
constitute one and the same instrument.
5.4 GOVERNING LAW. This Amendment shall be governed by and construed
in accordance with the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the date first written above.
PACIFICARE HEALTH SYSTEMS, INC.,
formerly known as N-T Holdings, Inc.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Agent
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
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BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as a Bank
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
THE CHASE MANHATTAN BANK
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
CITICORP USA, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
THE BANK OF NEW YORK
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
THE BANK OF NOVA SCOTIA
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
8
BANQUE NATIONALE DE PARIS
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
THE DAI-ICHI KANGYO BANK, LTD.,
LOS ANGELES AGENCY
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, LOS ANGELES AGENCY
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND" NEW YORK BRANCH
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
9
SANWA BANK CALIFORNIA
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
THE SUMITOMO BANK, LIMITED, LOS
ANGELES BRANCH
By:
-----------------------------------
Name:
---------------------------------
Title:
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XXXXX FARGO BANK, N.A.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
BANCA COMMERCIALE ITALIANA
LOS ANGELES FOREIGN BRANCH
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
10
BANQUE PARIBAS
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
By:
-----------------------------------
Name:
---------------------------------
Title:
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CIBC INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
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COMMERZBANK AKTIENGESELLSCHAFT, LOS
ANGELES BRANCH
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
By:
-----------------------------------
Name:
---------------------------------
Title:
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CREDIT LYONNAIS NEW YORK BRANCH
By:
-----------------------------------
Name:
---------------------------------
Title:
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11
CREDIT SUISSE FIRST BOSTON
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
THE FIRST NATIONAL BANK OF CHICAGO
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
THE FUJI BANK, LIMITED
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
MELLON BANK, N.A.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
THE MITSUBISHI TRUST AND BANKING
CORPORATION, LOS ANGELES AGENCY
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
12
PNC BANK, N.A.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
THE SAKURA BANK, LTD., LOS ANGELES
AGENCY
By:
-----------------------------------
Name:
---------------------------------
Title:
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SOCIETE GENERALE
By:
-----------------------------------
Name:
---------------------------------
Title:
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THE TOKAI BANK, LIMITED,
LOS ANGELES AGENCY
By:
-----------------------------------
Name:
---------------------------------
Title:
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UNION BANK OF CALIFORNIA, N.A.
By:
-----------------------------------
Name:
---------------------------------
Title:
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13
THE SANWA BANK, LIMITED,
LOS ANGELES BRANCH
By:
-----------------------------------
Name:
---------------------------------
Title:
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